Belair Insurance Co. v. McMichael

86 O.R. (3d) 68

Ontario Superior Court of Justice, Divisional Court,

Lane, Matlow* and Swinton JJ.

May 17, 2007

• Mr. Justice Matlow took no part in this judgment.

Insurance -- Automobile insurance -- Statutory accident benefits -- Attendant care -- "Incurred" -- Insurer denying insured attendant care benefits in 2002 -- Arbitrator finding in 2005 that insured was suffering from catastrophic impairment caused by motor vehicle accident and ordering insurer to pay attendant care benefits from 2002 -- Insured not in fact receiving attendant care between 2002 and 2005 -- Reasonable expense of such care nevertheless having been "incurred" by insured -- Decision that insurer had to pay insured attendant care benefits not patently unreasonable.

The insured was injured in a motor vehicle accident in 1998. Before the accident, he had been a recreational user of cocaine. After the accident, and as a result of his injuries, he developed a crack cocaine addiction. An occupational therapist assessed his attendant care needs in 2002 and concluded that he required 24-hour attendant care seven days a week in order to ensure that he did not abuse cocaine. The insurer found that the insured was not catastrophically impaired and refused to pay him the requested benefits. An arbitration took place in 2005. The arbitrator found that the insured was catastrophically impaired and ordered the insurer to pay him attendant care benefits from April 2002. On appeal by the insurer, the Director's Delegate affirmed the decision of the arbitrator. The insurer applied for judicial review of that decision, arguing that as the insured did not in fact receive attendant care from April 2002 to February 2005, did not pay for it and did not incur a debt or obligation to pay for such care, the benefit was not "incurred" within the meaning of s. 16 of the Schedule set out in Statutory Accident Benefits Schedule -- Accidents on or after November 1, 1996, O. Reg. 403/96 under the Insurance Act, R.S.O. 1990, c. I.8.

Held, the application should be dismissed.

The insurer's position would mean that the arbitrator was without authority to require after the fact payment of benefits to which a claimant has proved entitlement, unless the claimant had found a way to obtain the services without the financial support of the insurer. This would be an absurd result and would render the dispute resolution process meaningless. The insured made a contemporaneous and well-documented request for funding which was denied on a basis subsequently found to be invalid. Had the correct assessment been made, the insured would have received the benefits and likely would have benefited from the care which ought to have been provided. Even if payment of the benefits was arguably a windfall to him, non-payment was certainly a windfall to the insurer. As between the two, the insurer was the one with the statutory obligation to pay, and the arbitrator and the Director's Delegate had chosen an interpretation of "incurred" which required the insurer to do now what it would have done if the assessment had been correct. That interpretation was not patently unreasonable.

APPLICATION for judicial review of a decision of a Director's Delegate upholding a decision of an arbitrator.

Cases referred to Kennelly v. Wawanesa Mutual Insurance Co. (2000), 2000 CarswellOnt 810 (F.S.C.O. Arb.); Liberty Mutual Insurance Co. v. Young, 2006 7286 (ON SCDC), [2006] O.J. No. 952, 207 O.A.C. 377, 35 C.C.L.I. (4th) 141 (Div. Ct.); MacDonald v. Travelers Indemnity Co. of Canada (1987), 1987 4062 (ON SC), 60 O.R. (2d) 385, [1987] O.J. No. 712, 42 D.L.R. (4th) 204, [1987] I.L.R. I-2220 (H.C.J.); Smith (Committee of) v. Wawanesa Mutual Insurance Co. (1998), 1998 18861 (ON SC), 42 O.R. (3d) 441, [1998] O.J. No. 5058, 168 D.L.R. (4th) 750, [1999] I.L.R. I-3634, 43 M.V.R. (3d) 272 (Div. Ct.)

Statutes referred to Insurance Act, R.S.O. 1990, c. I.8, s. 20 [as am.]

Rules and regulations referred to Statutory Accident Benefits Schedule -- Accidents on or after November 1, 1996, O. Reg. 403/96, ss. 16 [as am.], 18

Chris T. Blom, for applicant. Alan Rachlin, for respondent. Robert Conway, for the Financial Services Commission of Ontario.

The judgment of the court was delivered by

[1] LANE J.: -- This is an application for judicial review of the decision dated March 14, 2006, of the Financial Services Commission of Ontario ("Commission"), whereby the Director's Delegate (Ms. Nancy Makepeace) dismissed the appeal of the applicant from the decision of Arbitrator D. Muir.

The Nature of the Case and the Issue

[2] The respondent was injured in a motor vehicle accident on June 14, 1998. He was insured by Belair Insurance Company ("Belair"), which paid his accident benefits following the accident.

[3] A dispute arose as to the extent of the respondent's injuries, in particular whether they were catastrophic, and an arbitration took place. On March 2, 2005, Arbitrator D. Muir found that the respondent was suffering from a catastrophic impairment caused by the accident and ordered that Belair pay attendant care benefits from April 2002 at the rate of $5,056.80 per month and income replacement benefits at the rate of $256 per week from November 24, 2002.

[4] Belair appealed the decision. Director's Delegate Makepeace dismissed the appeal in a decision delivered on March 14, 2006.

[5] Although the Notice of Application for Judicial Review sought broader relief, Belair proceeded only on the issue of past attendant care from April 2002 to February 2005.

The Factual Background

[6] The accident took place on June 14, 1998. The respondent was a rear seat occupant of a taxi cab and was thrown from the vehicle. He sustained a head injury, an avulsion skull fracture, a femoral fracture, a rib fracture, a scapular fracture, a pneumothorax (air surrounding the lungs, caused by trauma), a fracture of a bone in the left hand, the displacement of the TMJ and a fracture of the T9 vertebrae.

[7] Following the accident the respondent developed a crack cocaine addiction. More than two years after the accident, he applied for attendant care benefits. Beverly Cott, an occupational therapist, conducted a Form 1 assessment of the respondent's attendant care needs in March 2002. She concluded that he required attendant care at the rate of 24 hours per day, seven days a week, in order to supervise the respondent so that he would not use crack cocaine. She found that the respondent ". . . remains in crisis and at great risk of returning to drug usage, particularly in view of his history and his poorly structured daily routine" and further:

. . . in an effort to ensure his safety and prevent a risk of overdosing, Mr. McMichael requires ongoing supervision which does qualify as aeattendant care'. Given that Mr. McMichael continually finds himself in crisis, this therapist supports the provision of attendant care, at least until such time as he is admitted to an in-patient drug rehabilitation program.

[8] Because it was more than two years since the accident, Mr. McMichael had to establish a catastrophic impairment in order to qualify for SABS benefits. In September and October 2002, a DAC assessment was conducted and concluded that he was not catastrophically injured because he could continue with some employment. Belair relied upon this assessment and did not pay the requested benefits. The arbitrator rejected the conclusions of this assessment and preferred the evidence of other physicians in finding that Mr. McMichael was competitively unemployable and also in need of the requested attendant care at the time of the Cott report and continued to require it throughout the relevant period.[^1]

[9] The arbitrator found that, prior to the accident, the respondent was a recreational user of cocaine but was not addicted. He did not meet the DSM-IV criteria for addiction because there was no evidence that his use ever interfered with his day-to-day life. On the contrary, he led "an active, productive and by all accounts a complete life in the years prior to the car accident".[^2] Later in his reasons, the arbitrator said:

. . . I find that Mr. McMichael's impairments are all causally related to the car accident. As noted a number of times, Mr. McMichael was in good health prior to the accident, leading an active family, work and social life. He was for our purposes impairment free prior to the accident.[^3]

[10] As to the situation after the accident, the arbitrator found, after carefully considering much medical and factual evidence, as follows:

There is no substantial dispute that Mr. McMichael's difficulties, functionally and emotionally, are inextricably linked to his drug abuse. To the extent that he is able to control his drug use he is able to function, albeit with some important physical, emotional and cognitive limitations.

and:

Mr. McMichael's failed attempts to return to work, his social withdrawal, his abuse of wife and family his estrangement from his son, the seizure in November 2003,[^4] as well as the hospitalizations in March 2002, are evidence, I find, of the consequences of Mr. McMichael's impairments arising from the injuries sustained in the June 1998 accident. Almost everyone, with the possible exception of Mr. McMichael himself, agrees that if he could get off the drugs he would function at a higher level and become a more productive member of society. However, to date he has been unable to do so.[^5]

[11] The evidence was that the respondent did not in fact receive the attendant care, which it was felt was necessary for him, due in part to an inability to pay for it without the assistance of the insurance benefit that was being denied to him. Arbitrator Muir held as follows in considering the obligation of the insurer to pay the past attendant care:

It is well established that an applicant need not actually receive the item or services claimed in order to be entitled to an expense. To do otherwise would allow the insurer to set up the inability of an insured to pay for a benefit as a shield from its obligation under the policy of insurance. It is sufficient that the reasonableness and necessity of the service be established and that the amount of the expenditure can be established with certainty.[^6]

[12] Director's Delegate Makepeace affirmed the decision of the Arbitrator. She observed, as follows:

Belair submits that the word "incurred" indicates that attendant care benefits provide indemnity coverage only, and therefore no benefits are payable for any period when the service was not obtained or the expense incurred. However, the accident benefits scheme is consumer protection legislation, and this sometimes requires "bright-line boundaries" that produce anomalous results in certain circumstances. Belair's position has serious implications for the claims process. Kennelly illustrates the problem: if benefits for a given period are not payable unless the services were received, the insurer stands to benefit from refusing to pay for services claimed, whether for medical, rehabilitation, attendant care, housekeeping or other services.[^7]

The Legislative Framework

[13] The claim is governed by the provisions of the Schedule set out in Statutory Accident Benefits Schedule -- Accidents on or after November 1, 1996, O. Reg. 403/96, under the Insurance Act, R.S.O. 1990, c. I.8. The Schedule provides for the payment of attendant care benefits, as follows:

16(1) The insurer shall pay an insured person who sustains an impairment as a result of an accident an attendant care benefit.

. . . . .

(2) The attendant care benefit shall pay for all reasonable and necessary expenses incurred by or on behalf of the insured person as a result of the accident for,

(a) services provided by an aide or attendant; or

(b) services provided by a long-term care facility, including a nursing home, home for the aged or chronic care hospital.

(4) The monthly amount payable by the attendant care benefit shall be determined in accordance with Form 1.

18(2) No attendant care benefit is payable for expenses incurred more than 104 weeks after the accident.

(3) Subsections (1) and (2) do not apply in respect of an insured person who sustains a catastrophic impairment as a result of the accident.

[14] The Insurance Act establishes a dispute resolution system for disputes about benefits, including a privative clause in s. 20:

20(1) This section applies with respect to proceedings under this Act before the Tribunal, the Superintendent and the Director and before an arbitrator.

(2) A person referred to in subsection (1) has exclusive jurisdiction to exercise the powers conferred upon him or her under this Act and to determine all questions of fact or law that arise in any proceeding before him or her and, unless an appeal is provided under this Act, his or her decision thereon is final and conclusive for all purposes.

Positions of the Parties

[15] The applicant says that, as the respondent did not receive attendant care from April 2002 to February 2005, did not pay for it and did not incur a debt or obligation to pay for such care, the benefit was not "incurred".

[16] The respondent submits that Director's Delegate Makepeace ". . . properly recognized that section 16 [set out above] ought to be interpreted in a manner that prohibits an insurer from benefiting from an insured's lack of financial resources and familial support". The respondent further submits that the decisions of the arbitrator and the Director's Delegate "reflect a natural extension of a developing body of case law that adopts a broad interpretation of the term 'incurred' due to fundamental public policy considerations".

Standard of Review

[17] The parties agree that the standard of review of these decisions is that of patent unreasonableness. In Liberty Mutual Insurance Co. v. Young,[^8] this court analyzed the standard and concluded:

In our view, the decisions in question were made within a specialized adjudicative regime established under legislative and regulatory authority. The arbitrator and the Director are granted exclusive jurisdiction to rule on accident benefits entitlement. Their decisions are final and conclusive on all questions of fact and law. The dispute being decided is between two parties and questions of law often attract a standard of correctness. However, decisions on questions of law and fact within the SABs adjudicative regime are protected by a full privative clause and the legal interpretation required of the arbitrator and the Director lies at the core of their specialized jurisdiction. In our view, the appropriate standard of review is properly held to be patent unreasonableness.

[18] Accepting that analysis, I proceed to review the decision of the Director's Delegate on the basis of whether it is patently unreasonable.

Analysis

[19] The arbitrator held and the Director's Delegate affirmed that where the injured party did not actually receive the monetary benefit to which he was entitled and did not receive the care to which he was entitled, the reasonable expense of such care was nevertheless payable to him: it had been "incurred", within the meaning of s. 16 of the Regulation, in the circumstances of this case.

[20] The applicant submits that payment of the cost of a service not rendered amounts to a windfall for the insured and such a decision is patently unreasonable. It submits that the insurer followed the proper process, obtained an assessment and relied on it in denying the claim. In my view, the answer to this submission is found in the Director's Delegate's decision[^9] where she points out that Belair's position would mean that the arbitrator was without authority to require after the fact payment of benefits to which the claimant has proved entitlement, unless the claimant had found a way to obtain the services without the financial support of the insurer. I agree with the Director's Delegate's conclusion, at p. 23 of her reasons, that this would be an absurd result and would render the dispute resolution process meaningless.

[21] Mr. McMichael made a contemporaneous and well-documented request for funding which was denied on a basis subsequently found to be invalid by the process established to determine disputes. Had the correct assessment been made, Mr. McMichael would have received the benefits and likely would have benefited from the care which ought to have been provided. Even if payment of the benefits is arguably a windfall to him (and I do not see it as such), non-payment is certainly a windfall to the insurer. As between the two, the insurer is the one with the statutory obligation to pay, and the arbitrator and the Director's Delegate have chosen an interpretation of "incurred" which requires the insurer to do now what it would have done if the assessment had been correct. In my view, this is entirely supportable on the case law.

[22] The leading cases to which we were referred are MacDonald v. Travelers Indemnity Co. of Canada[^10] and Smith (Committee of) v. Wawanesa Mutual Insurance Co.[^11] Both deal with the meaning of "incurred", the former in the context of a Michigan statute, the latter in the context of no-fault benefits prescribed by statute and incorporated into the standard auto insurance policy. In MacDonald, Osler J. said:

I have not been referred to any case or to any other authority in which the word aeincur' has been specifically defined or dealt with. The ordinary meaning of the word is given in the Shorter Oxford Dictionary as "to run into"; "to render oneself liable to". In the context of the Michigan statute, it does not seem to me that the word implies a strict necessity to be legally obligated to make payments before expenses can be said to have been incurred.

Suppose, for example, Lynne MacDonald had not had the support of her family and had been destitute. She could never have made payments with respect to her care or rehabilitation and thus made herself entitled to be reimbursed. It seems to me that if a reasonable necessity for the item claimed is established and the cost of obtaining such a service or product is shown, the expense may be said to have been incurred, and the obligation to pay within thirty days must then be assumed by the defendant.

[23] In Smith, Archie Campbell J., for a unanimous court, said, after reviewing the authorities [at p. 448 O.R.]:

The "incurred" cases and the interpretive cases yield three principles.

First, although capable of a narrow meaning, the word aeincur' is capable also of the wider meaning of "run into""render oneself liable to""bring upon oneself", or "be subject to". There is a wider sense in which the expenditure is incurred within the time limit as soon as it is known with certainty that it is necessary and its amount is known.

Second, the provision should be construed contra proferentem, the coverage interpreted broadly and the time limitation narrowly.

Third, a remedial and purposive interpretation suggests that unfairness would result from a narrow interpretation. As Osler J. pointed out in MacDonald the narrow interpretation penalizes the insured who lacks the money or the credit to pay, or become legally obligated to pay for, the insured services. As the motions judge pointed out in this case,

. . . if the defendant's position were correct it would allow those persons who could pay for services in advance to be in a much better position to recover than those who could not. This, as a matter of policy, would be totally unfair.

[Emphasis in original]

[24] Campbell J. continued [at p. 479 O.R.]:

A purposive and remedial interpretation requires that the legislation be read so as not to require an insured person to finance, or to pledge her credit, in order to receive the very benefits for which she is insured.

For these three reasons, I conclude that an insured, in order to incur an expenditure within four years within the meaning of the standard policy, need not actually receive the items or services or spend the money or become legally obliged to do so. It is sufficient if the reasonable necessity of the service or item and the amount of the expenditure are determined with certainty before the end of four years. It is a question of fact in each case, whether the requisite degree of certainty has been established.

[25] Arbitral jurisprudence was also cited to us, most of which shows a steady trend towards a purposive and remedial approach to the SABS legislation. One important such decision is Kennelly v. Wawanesa Mutual Insurance Co.[^12] where arbitrator Baltman ordered the insurer to pay for speech therapy which had been recommended but not provided and could no longer be provided. She reasoned that if the insurer were allowed to withhold payment, the result would be that the statutory goal of prompt payment for necessary services would be undermined as insurers might deny payment for needed services with impunity, believing that arbitrators would not order them paid for later, when they would no longer benefit the insured.

[26] Considering the case law and the factual findings, I am of the view that the impugned decision as to the interpretation to be given to this legislation is clearly not patently unreasonable. There is a clear line of factual and legal reasoning evident in both decisions and much support from the case law.

[27] For these reasons, I would dismiss the application. As agreed by the parties, costs will follow the event, fixed at $10,000.

Application dismissed.

[^1]: Arbitrator's decision, Application Record tab 2, p. 71 (reasons p. 66). [^2]: Ibid., p. 19. [^3]: Ibid., p. 63. [^4]: The seizure was attributed to cocaine abuse: ibid., p. 32. [^5]: Ibid., pp. 65-66. [^6]: Ibid., p. 66. [^7]: Decision of Director's Delegate N. Makepeace: Application Record, Tab 3, pp. 22-23. [^8]: 2006 7286 (ON SCDC), [2006] O.J. NO. 952, 207 O.A.C. 377 (Div. Ct.), at para. 5. [^9]: Application Record pp. 97-98; reasons pp. 23-24. [^10]: (1987), 1987 4062 (ON SC), 60 O.R. (2d) 385, [1987] O.J. No. 712 (H.C.J.)(paras. 244-45). [^11]: (1998), 1998 18861 (ON SC), 42 O.R. (3d) 441, [1998] O.J. No. 5058 (Div. Ct.)(pp. 6,7 QL). [^12]: 2000 CarswellOnt 810 (F.S.C.O. Arb.).